DRA-4-CO:R:C:E 222812 CB
Regional Commissioner
U.S. Customs Service
Pacific Region
One World Trade Center
Long Beach, CA 90831-0700
RE: Application for further review of Protest No. 2809-90-
000043 under 19 U.S.C. 1313(j)
Dear Sir:
The above-referenced protest was forwarded to this office
for further review. We have considered the points raised and our
decision follows.
FACTS:
The claimed drawback merchandise consists of fresh iceberg
lettuce. Protestant utilizes four growing areas in Mexico,
California and Arizona to provide year-round supply of lettuce to
meet market demands. According to protestant the soil,
irrigation, harvesting, and personnel involved are all
substantially the same.
Protestant produces iceberg lettuce from seed purchased from
numerous seed companies and the same seed is used in all the
sites. The same soil-preparation, planting, cultivation, and
irrigation techniques are used at all of the locations.
Protestant uses the same pieces of equipment to harvest, trim,
package and cool the product at all locations. After harvesting,
the lettuce is either wrapped in the field in clear plastic film
and then placed in cartons, or is packed unwrapped in cartons.
The lettuce also bear different commercial labels. In both
instances, the lettuce is cooled immediately after being boxed.
Lettuce from Arizona and Mexico is placed in a cold-storage
warehouse in Arizona. According to protestant, no distinction is
made between sources of iceberg lettuce. Product from Arizona
and Mexico is mixed and commingled in the cold-storage. Once
placed in cold-storage, the iceberg lettuce is handled on a
first-in, first-out basis (FIFO). Sales orders are given to the
cold-storage crew, which loads the product onto the trucks.
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Protestant submitted drawback claims pursuant to its
substitution same condition drawback program. Thereafter, the
Regulatory Audit Division conducted an audit which included
protestant's unliquidated same condition substitution drawback
claims paid under the accelerated payment procedure. It is these
claims which are the subject of this protest. Regulatory Audit
concluded that the claims should be disallowed because protestant
did not prove that the designated lettuce was fungible with the
substituted lettuce. Additionally, the report concluded that
exports were not weighed but were claimed as if each exported
carton weighed the same as each designated carton. Protestant's
export records showed that it has a special export pack of 38
heads of lettuce in a carton. Under commercially recognized and
USDA standards lettuce may be packed 24 to 30 heads per carton,
which, in turn, can weigh between 42 and 50 pounds.
Protestant contends that the merchandise is fungible and
that its drawback claims were made pursuant to a program
established under Customs Service guidance and that it relied on
that guidance.
ISSUES:
1) Whether the subject iceberg lettuce imported from Mexico
and domestic iceberg lettuce from Arizona are fungible?
2) Whether, for drawback calculation purposes, the
assumption may be made that the exported merchandise weighs the
same as the imported merchandise for which substitution is being
requested?
3) Whether protestant's reliance on oral advice is a basis
for the relief sought?
LAW AND ANALYSIS:
Issue #1
Section 313(j)(2) of the Tariff Act of 1930, as amended (19
U.S.C. 1313(j)(2)), provides that for substitution same condition
drawback purposes, the merchandise substituted for exportation
must be fungible with the duty-paid merchandise and in the same
condition as was the imported merchandise at the time of its
importation.
Fungibility is defined in the Customs Regulations as
"merchandise which for commercial purposes is identical and
interchangeable in all situations." 19 CFR 191.2(1). Customs
has interpreted fungibility as not requiring that merchandise be
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precisely identical; identical for "commercial purposes" allows
some slight differences. The key is complete commercial
interchangeability. As stated in C.S.D. 85-52: "[t]he
commercial world consists of buyers, sellers, comminglers,
government agencies and others. If these groups treat articles
or merchandise as fungible or commercially identical, the
articles or merchandise are fungible....When two or more units of
apparently identical properties are treated differently by the
commercial world for any reason, they are not fungible." 19
Cust. Bull. 605, 607 (1985).
In the instant case, during the audit of the subject claims,
Customs concluded that there were commercial differences such as
weight, type of packaging, and labelling. Sales invoices
disclosed a price difference between brands and packaging.
Additionally, that Canadian Customs acceptance standards require
lettuce to be USDA grade "U.S. No. 2" or better. None of the
designated imports were USDA graded at time of importation.
Therefore, according to the audit, it could not be established
that the imported lettuce was USDA grade "U.S. No. 2" or better.
Protestant contends that the variations in price do not reflect
variations in the product itself.
We disagree. Variations in pricing and packaging which
result from customer preference do affect fungibility.
Protestant itself states that wrapped lettuce is sold at a higher
price than naked lettuce because, at the customer's request, the
wrapper leaves are replaced with cellophane wrapping. In Guess?
Incorporated v. United States, 24 Cust. B. & Dec. No. 51, p. 26,
Slip Op. No. 90-121 (CIT November 26, 1990), the Court of
International Trade held that if a commercial preference has been
demonstrated, such preference destroys fungibility. The court
stated that fungibility must be present in all respects. "This
means that it [the substituted merchandise] must stand in the
place of the imported merchandise, but must not be more desirable
than, the imported merchandise." Guess? Incorporated v. United
States, 24 Cust. B. & Dec. No. 51, at 29. Therefore, regarding
the subject protest, the cellophane wrapped and unwrapped lettuce
are not fungible.
However, the similarly packaged lettuce is fungible. In the
instant case, protestant has presented evidence that the same
seed, soil, irrigation, harvesting, and personnel are used at all
of the locations. There are no botanical varieties of iceberg
lettuce. The Harmonized Tariff Schedule of the United States
(HTSUSA) does not classify iceberg lettuce by grade, size or
weight. Therefore, based on this information, we are of the
opinion that the subject iceberg lettuce is fungible within the -4-
brand name and type of packaging. In other words, on a U.S.D.A.
grade for grade basis, the wrapped and similarly labelled lettuce
is fungible with wrapped and similarly labelled lettuce and
unwrapped lettuce is fungible with unwrapped and similarly
labelled lettuce.
Additionally, Regulatory Audit concluded that protestant
could not establish that the imported and exported lettuce met
the same grading standard. Customs and protestant agree that
Canadian Customs acceptance standards require lettuce to be USDA
grade "U.S. No. 2" or better. Protestant has asserted that the
lettuce is handled on a FIFO basis. Sales orders are given to
the warehouse crew, which loads the product onto waiting trucks.
Thus, any shipment may contain a mixture of domestic-sourced and
Mexican-sourced lettuce. Unless the evidence fails to support
the assertion that the lettuce is handled on a FIFO basis, it
must be concluded that, in order for the lettuce to meet Canadian
Customs standards, the imported lettuce must have been USDA grade
"U.S. No. 2" or better. Otherwise, any Mexican-sourced lettuce
in a shipment would be rejected by Canadian Customs.
Issue #2
Protestant concedes that it does not weigh out-going
cartons. Protestant contends that the San Francisco district
office granted protestant permission to use the method of the
number of cartons exported equals the number of cartons imported.
Under commercially recognized and USDA standards lettuce may be
packed 24 to 30 heads per carton, which, in turn, can weigh
between 42 and 50 pounds. The rate of duty on lettuce is
specific, i.e., $.02 per pound. Therefore, protestant used net
weights of the import cartons to compute their claims.
Protestant alleges that the district office agreed that a
sample of five cartons would be weighed at the time of
importation. The average of those carton weights would be deemed
to be the weight of each carton in that shipment and duty on the
entire shipment would be computed and paid. However, the use of
weighted average is in contravention of previously published
Headquarter's rulings. In C.S.D. 89-20, it was concluded that
averages may not be used where it could result in an
overallowance of drawback. The courts have consistently held
that "[a]ny doubt arising in the decision of a drawback case in
the construction of the statute and regulations must be decided
in favor of the Government." Border Brokerage Co. v. United
States, 53 Cust. Ct. 6, 10 (1964); Nestle's Food Co. (Inc.) v.
United States, 16 Ct. Cust. Appl. 451, 455 (1929); Swan & Finch
Co. v. United States, 190 U.S. 143, 146 (1903).
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However, protestant can claim drawback based on the least
heavy carton, i.e. protestant may calculate its claim based on an
X number of cartons weighing 42 pounds. If protestant used this
method, all variable factors are in the Government's favor and
there is no question of overallowance of drawback because this
methodology is revenue neutral.
Issue #3
Protestant claims that the Customs Service decision to
challenge what it had earlier advised protestant to do came after
significant delays by Customs to protestant's detriment.
Moreover, that the Customs Service should be equitably estopped
from denying the subject drawback claims. Equitable estoppel
adjusts the relative rights of parties based upon a consideration
of justice and good conscience. United States v. Georgia-Pacific
Company, 421 F.2d 92, 95 (9th Cir. 1970). The Federal Court in
Air-Sea Brokers, Inc. v. United States, 66 CCPA 64, 68, 596 F.2d
1008, 1011 (1979), however, has held that "equitable estoppel,
even if available in cases involving the Government in its
proprietary capacity, is not available against the Government in
cases involving the collection or refund of duties on imports."
The subject of drawback appears to be covered by the court's
holding.
In any event, in order to establish an equitable estoppel
defense, protestant must show that agents of the United States
acted within the scope of their authority. Glopak Corp. v.
United States, 12 Cl. Ct. 96 (1987), aff'd on other grounds, 851
F.2d 334 (1988). It is clear from the Customs Regulations that
any oral advice protestant received from the district office was
not within the scope of that agent's authority. Any advice
issued was not binding on the Customs Service since the field
office did not have the authority to issue rulings on
fungibility, see Customs Service Decision (C.S.D.) 85-34 (which
specifically reserves drawback questions concerning fungibility
and same condition to the Drawback and Bonds Branch [now the
Entry Rulings Branch] at Headquarters); see also 19 C.F.R.
177.1(d) and 177.2. Therefore, reliance on the district office's
oral advice was not reasonable and protestant has failed to
establish one of the elements of the doctrine, i.e. that the
advice given by the field office personnel was within the scope
of their authority.
HOLDING:
1) Similarly packaged (e.g. wrapped for wrapped; unwrapped
for unwrapped) and on a U.S.D.A. grade for grade basis domestic-
sourced and Mexican-sourced iceberg lettuce are fungible for
substitution same condition drawback purposes.
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1a) A claimant may establish that it substituted fungible
lettuce by showing it shipped the lettuce from lots on a strict
FIFO basis.
2) Weighted average may not be used to compute drawback
claims. However, a drawback claim may be presented using the
least heavy carton as the basis for computing the amount of the
claim.
3) A defense of equitable estoppel is not available when
the protestant relies on oral advice given by an agent acting
beyond the scope of his/her authority.
Protestant should be allowed to amend its drawback claims
provided it complies with the requirements set forth under the
LAW AND ANALYSIS section above.
A copy of this decision should be attached to the CF 19
Notice of Action to satisfy the notice requirement of section
174.30(a), Customs Regulations.
Sincerely,
John A. Durant, Director
Commercial Rulings Division